See below what our govt. is directing at our children.

Truly depressing.

All donations to my campaign are added to what I’m spending anyway to try to get the word out.

Many thanks to all of you who have already donated, no matter how small!!!
It all goes into the pot to sustain the effort.

Also many thanks to all of you who continue to try to organize meetings and speaking events for me- much appreciated!

CBO’s Director’s Blog: Letter to a Seventh Grader

A short time ago, I received an interesting letter from a young man in Michigan asking about federal budget deficits. I thought that perhaps other students would be interested in the kinds of questions he asked and how I answered him, so I’ve decided to share my letter to him with all of you. Here’s what I wrote:

1. What are the primary causes of the current federal budget deficits?

The current large deficits are the result of a combination of factors. These include an imbalance between tax revenues and the government’s spending that began before the recent economic recession and turmoil in the financial markets, sharply lower revenues and higher spending related to current economic conditions, and the budgetary costs of policies put in place by the government to respond to those conditions.

2. How will budget deficits affect people under the age of 18?

The government runs a budget deficit when it spends more on its programs and activities than it collects in taxes and other revenues. The government needs to borrow to make up the difference. When the federal government borrows large amounts of money, it pushes interest rates higher, and people and businesses generally need to pay more to borrow money for themselves. As a result, they invest less in factories, office buildings, and equipment, and people in the future—including your generation—will have less income than they otherwise would.

Also, the government needs to pay interest on the money it borrows, which means there will be less money available for other things that the government will spend money on in the future. Squeezing other spending affects different people in different ways, depending on their individual situations. For example, many young people benefit from government programs that provide money to families in need of food or medical care or to people who have lost their job, or from the financial support the federal government provides to local schools, or from the grants or loans the government offers to help pay for college education.

3. How is the U.S. government working to reduce budget deficits?

The President created a National Commission on Fiscal Responsibility and Reform to draw up plans to address the deficit problem. Most of the people on the commission are Members of Congress.

The commission will consider ways to reduce the budget deficit by 2015 as well as ways to improve the long-term budget outlook. Under current government policies, the gap between the government’s spending and revenues in coming years will be large. Therefore, balancing the budget would require significant changes in spending, taxes, or both. On CBO’s Web site, you can find information about the budget outlook during the next 10 years and over the long term.

More information about the commission can be found on its Web site: http://www.fiscalcommission.gov.

Congress also has enacted a new law (called “Pay-As-You-Go”) that typically requires legislation that increases spending or lowers tax revenues to include other measures to offset the costs of those changes.

4. What can people, and especially school-aged children, do to help curb budget deficits? The most important thing that school-aged children can do to help reduce future deficits is to study hard and acquire the best possible education. This will help you and your classmates get better jobs when you grow up, which will help the economy grow. In turn, a stronger economy will produce higher tax receipts for the government, which will lower the deficit.

When young people get jobs, they should be sure to save some of the money they earn. Through a fun and important bit of math called compounding, savings of small amounts can grow over time into significant amounts. For the economy as a whole, the more people save, the more money is available for businesses to invest in factories, office buildings, and equipment. For individuals and families, more savings provide a financial cushion in times of economic difficulty. In particular, more savings can help people pay large medical expenses or save their home in case they lose their job or become ill, thus helping them avoid needing government assistance.

People of all ages can also help to reduce the deficit by learning how the government spends money and from whom the government collects money. Understanding the current budget is essential for choosing intelligently among different ways to change programs and policies in order to reduce deficits.

5. If I am to convey one key message to my school regarding the federal budget deficit, what would it be?

The prospect of budget deficits for many years in the future is a serious problem for our country. Ultimately, people in the United States will have to bring into balance the amount of services they expect the government to provide, particularly in the form of benefits for older Americans, and the amount of taxes they are willing to send to the government to finance those services. Because it takes a long time to implement major policy changes, deciding what those changes will be is an urgent task for our citizens and for our policymakers.

Thank you for taking the time to write to us about these difficult issues.

Best wishes,

Doug Elmendorf

4 Responses

  1. I can’t imagine that anybody who understands government finance could possibly write such a deceptive letter. Therefore, I have to conclude that the current Director of the Congressional Budget Office doesn’t understand government finance. Does this also mean that the previous director, Peter Orszag, who is now Obama’s Director of OMB also doesn’t understand government finance? Yes, I think it does.

  2. Maybe my BS detector is supersensitive, what with all the BS in the air these days, but some of the questions and answers seem off to me. E. g.,

    “2. How will budget deficits affect people under the age of 18?”

    Is that the question of a 7th grader? What does he care about high school seniors? “School kids” I buy, “people under the age of 18” sounds like an adult question. Maybe that comes from his parents, I don’t know.

    “3. How is the U.S. government working to reduce budget deficits?”

    That sounds like a question the CBO director is asking himself.

    By the CBO director:

    “These include an imbalance between tax revenues and the government’s spending that began before the recent economic recession and turmoil in the financial markets, sharply lower revenues and higher spending related to current economic conditions, and the budgetary costs of policies put in place by the government to respond to those conditions.”

    Is that how you would explain things to a twelve-year-old? I wouldn’t even try that with a high school graduate.

    Now, maybe it’s just a bureaucrat with a tin ear, but I can you spell PROPAGANDA, boys and girls? 😉

  3. In line with the theme of education, I am giving a talk this week about modern money myths. Not that I claim any expertise, but the din of debt/deficit fear mongering is so great that the more voices that are raised against it, the better. I will be talking to a group of psychologists, so they already understand that money is a social construct. 🙂 Briefly, here is what I am going to talk about. I would appreciate feedback. Many thanks. 🙂

    I. What is money?
    Not to offer a definition, but It has taken various forms over the years. Money is a social construct. It has value because we say that it does, and because we act as if it does. Even when money was backed by precious metals, the money provided value to the metal, not the other way around. (When the U. S. dropped silver backing of the dollar, the price of silver in dollars dropped 50%.) Money is a store of value and a medium of exchange. Even a store coupon can be money. Modern money is fiat money. The U. S. dollar is backed only by the “full faith and credit of the United States”.

    II. Modern money in America
    There was a scarcity of money in colonial America, because England wanted to exploit the colonies. That is why Spanish dollars (pieces of eight) became widely used. Massachusetts came up with the idea of issuing bills of credit, which it accepted in payment for taxes. Other colonies followed suit. Pennsylvania created money by lending. Benjamin Franklin told British friends that the reason for American prosperity was Colonial Scrip. Parliament outlawed using bills of credit to pay colonial taxes.
    Continental Congress financed the Revolution with Continental Dollars. By the of the war they were worth 2 cents on the dollar. They suffered not only from massive counterfeiting by the British, but the states never accepted them to pay taxes.

    III. Myth #1: The U. S. should pay off the national debt
    Andrew Jackson hated paper money because of the collapse of the Continental. He effectively paid off the national debt, all but about $300,000. This did not work out well, as it ushered in the depression of 1837. I do not claim to be able to explain the causes of that or any depression, but I point out that paying off the debt drained money from the economy. I cannot therefore prove that paying off the debt was a bad idea, but if it was a good idea, why have we not paid it off since then, in 174 years? Furthermore, significant paydowns of the debt have resulted in depressions and recessions, including the Great Depression.
    As we have thing set up, we pay for deficit spending by increasing the national debt. This is not Dialing for Dollars, but Debt for Dollars. That being the case, the size of the national debt indicates how many dollars the government has created for its citizens. The National Debt Clocks could as well be called National Wealth Clocks, National Endowment Clocks, or National Moneybags Clocks. 🙂
    We could set things up differently, and not increase the debt with deficit spending. Then we could pay off the debt without sucking dollars out of the economy. But as it is, paying off the debt would put a great strain on the economy.

    IV. Myth #2: The U. S. people should save money, and so should the government
    I look at a simplified economy with two households, the Smiths and the Joneses. If exports equal imports and the government has a balanced budget, if the Joneses save $10,000 this year the Smiths must decrease their savings by $10,000 or increase their debt by that amount. The only way that both families can save is for money to come in from exporting, or for the government to run a deficit. The U. S., as the richest country in the world and the one with the world’s reserve currency, is not going to make money from exporting anytime soon. So if we want to save, as a nation, the government has to run deficits.

    V. Myth #3: The U. S. people are passing on the burden of the national debt to our children and grandchildren
    I use Warren’s time travel argument, but I think that a non-technical audience needs more. Current debts are paid off in real time, but debts are rolled over and more debts are created. However, that is not necessarily a burden. The U. S. has never paid off the debt from the Civil War, in the sense of reducing the debt to a (nominal) level below what it was at the start of the war. It has never paid of the Spanish-American War, WWI, the Great Depression, WWII, or the Vietnam War. We ere the children and grandchildren who are supposedly suffering the burden of these unpaid debts. I never felt the burden of the cost of the New Deal, instead I enjoyed the subsequent prosperity and the benefits of the New Deal public works.
    Could it be a burden? The burden of debt has in fact been passed on to children and grandchildren who have inherited debt peonage. In such cases the creditors charge usurious rates and control employment, so that the debt grows and grows, with no chance of being paid off. Such conditions are a far cry from how national debt in a fiat currency is handled, despite cries of bond market vigilantes. If need be, the government can always pay off or service the debt by just writing a check.

    VI. Why does this matter?
    In the current financial crisis we have bailed out big banks and big business, but still face a sluggish economy and persistent high unemployment. Yet cries that we need to reduce the debt and deficit have spread fear and sapped the national will to tackle our problems. The richest nation on earth could afford to spend almost one trillion dollars on high finance at the drop of a hat, but now cannot afford to spend more than 15 billion dollars to put America back to work, while millions suffer? Fear mongers claim that irresponsible politicians spend too much. Yet in the face of this challenge, it would be both irresponsible and unjust not to spend enough. Nothing is holding us back from doing what needs to be done except fear and ignorance. These and other myths are perpetuating the ignorance and feeding the fear. Now is the time to dispel that ignorance, defeat the fear, and do what needs to be done.

Leave a Reply